Crunch Good Numbers
EVERY student of statistics has heard the quip attributed to British statesman Benjamin Disraeli: ``There are three kinds of lies: lies, damned lies, and statistics.'' Professors often cite the wisecrack in talking about how statistics can be misused to distort a situation. But sometimes statistics themselves misrepresent the facts. Indeed, there are increasing complaints that statistics about the United States economy are becoming less accurate.
The muttering, mostly by economists, grew louder this month when upward revisions in the statistics for May and June were especially large. As a result, some economists wondered if the Federal Reserve System had moved too early when it loosened monetary policy in late spring. Fed policymakers believed then that the economy had weakened decisively, whereas revised numbers show business activity was relatively strong. Economists ask whether bad statistics are leading to bad economic-policy decisions.
The statistics for this year will be revised again. If the economy does slump, that early monetary easing may prove good for the economy. In that case, the Fed's action will have been correct - even if based on funny numbers. Nonetheless, the Office of Technology Assessment states correctly in a paper published last week: ``Accurate, complete, and timely statistics are critical tools for effective public policy and business management....It is clear that the price paid for public-policy mistakes that stem from defects in national statistics can be many times higher than the entire national statistical budget.''
Should misleading statistics prompt the Fed to maintain a tight monetary policy longer than needed, the resulting economic downturn could add tens of billions of dollars to the deficit.
The Bush administration, aware of the danger, has set up a task force under Michael Boskin, chairman of the Council of Economic Advisers, to study the adequacy of the nation's statistics.
Some economists say that budget cuts during the Reagan administration have damaged the budgetmaking and analysis process. That could well be. But the Office of Technology Assessment study notes that the need for more resources ``cannot be established without a clearer view of the needs and priorities of the system taken as a whole.''
The economy today is subject to rapid and sometimes perplexing change. This makes it more difficult to gather precise measures of change and growth. It also makes better statistics more essential.